Stock Top Holding; Euro Top Holding....Bears, Wake Up!!

The VIX is sitting around its lowest levels in the past 5 years as seen on the above weekly chart.  The amount of complacency and optimism for higher stock prices is becoming crowded, and this screams at us that a reversal is at hand.  There should be a sharp pop in the VIX soon which will result in a sharp drop for stocks.  The pressure built up on the overly-optimistic and complacent side of the bulls should result in a sharp and sustained move lower in stock prices that should last at least a few weeks.

Note: I always recommend taking advantage of free resources from reliable sources.  An Elliott Wave Principle website, WaveTrack, is offering free access to their Elliott Wave Compass report until October 7th, 2012.  Take advantage, wavers! 

The subtle reversal bar I cited in last post has held its high.  Although the resulting action after the reversal bar (2nd green circle) has been sideways, suggesting it might be another 4th wave, I do think the bears should wake up and start getting positioned for a selloff.  The MACD has pinched as well, suggesting at least a short term pullback is at hand, although there's usually a divergence between momentum indicators and price when major tops occur.  So as I said earlier, there may be one more quick pop to a new high before the reversal occurs.  Either way, bears get ready.  Once a top occurs in the S&P, it should head to the 1300-1350 area in a hurry.

A Two-Bar Pattern that Points to Trade Setups

The euro may be leading stocks slower as the currency's pullback from the 78% fibonacci retracement level has been much larger and pronounced than the pullback in the stock market high.  I am short the EUR/USD with a stop just above the 1.3172 high.  I will add to my short position on rallies.  Stocks should soon follow the euro's descent.

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PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.